Pulse Points > February Investments & Market Update

Gill Capital Partners February Investment & Market Update

Market Update – Making Sense of the Current Market Rally

We find ourselves in one of the most interesting (insert adjective) times in modern political and financial market history. As our Investment Committee meets each week, we find our meetings running longer and containing more healthy disagreement than we have seen in quite some time. Irrespective of one’s political views, the market reaction to the election has been astounding. In the three months since the election, the S&P 500 is up roughly 8%, the yield on the U.S. 10-Year Treasury has moved from 1.85% to 2.40%, the U.S. Dollar has rallied by roughly 4%, and consumer confidence now sits at a 10-year high. Compare this to the two years leading up to the election, where the S&P 500 was up a total of 4.9%, held hostage by the Federal Reserve’s every whim and decision. So how did we get here and what is the market telling us? The market’s moves since the election can be directly attributed to a newfound hope by investors and global markets that the Trump administration, coupled with a Republican controlled congress, will be able to reduce corporate regulations, enact tax reform, repatriate corporate cash, which will lead to reinvestment, and increase infrastructure spending.

Our View:

Whether one agrees with the policies laid out above or not, there is no ignoring the shift that has occurred in favor of risk assets since the election. These types of rallies can be very powerful and self-fulfilling in a sense, where significant investment returns can lead to stronger consumer sentiment and potentially stronger growth. While the dramatic returns that we have seen in a very short period may seem overdone, we are not ignoring the potential of a self-fulfilling investment rally that very well could continue even if it is currently built on the back of hope as opposed to reality. At some point, however, hope will need to give way to reality with the enactment of some or all of the policies laid out above in order for the gains to continue. We are also cognizant of the potential risks here, and our Investment Committee discussions focus on them. Our investment philosophy continues to be built upon understanding what we own and why, along with owning real assets rather than synthetic investments that can be difficult to fully understand. We believe this approach gives us distinct advantages in the current environment: our portfolio performance makes sense and we avoid major mistakes. We have been extremely happy with the performance of our client portfolios over the past few months. We have been able to deliver strong returns where many advisors have struggled due to unnecessary risk-taking, over-hedging, over-concentration, and in many cases, over-complication.

Where Do We Go From Here?

Putting political views aside, we believe the bullish case for the markets at this point is reliant upon the Republican Congress and the Trump administration’s ability to push through the aggressive agenda they have laid out. If they do, we believe this market rally will be sustained and potentially go higher. However, an inability to enact much of the promised legislation will likely result in a correction as markets may determine that current valuations are not justified.

Our portfolios continue to be well positioned and have taken advantage of the recent market movement. If you know others who may benefit from our services, we welcome the referral and consider it the highest compliment.

As always, please let us know if you have any question or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance or estate needs.